Monday, 14 November 2011

Brian Edwards and economics

Not two things that go together well. I'm guessing Brain doesn't know much about economics given this,

I’m against selling our state assets. I’m impressed by Labour’s argument that you can only sell an asset once, and that, as soon as you’ve sold it, you’ve lost the revenue stream forever. Forever is probably the key word. You have to calculate the dividend loss for an indefinite period that ends – never.

There are a number of things you could say about this but let me cover a few. 1) you don't lose a revenue stream forever since the firm is unlikely to be around forever. 2) even if it was around forever the present value of an income stream along way in the future is to a close approximation zero. Thus Brian will be adding up a lot of nothing. 3) assuming a competitive method of sale the price received by the government for a asset will equal the present value of the (finite) revenue stream. 3) you don't lose all the stream anyway since tax is paid on the profits made by the new owners of the asset. 4) we gain by making more efficient use of resources given that on average over time private firms out perform public ones. 5) a competitive sale process it will capture some of these likely efficiency gains.

Let me return to a question I have asked before: Why do we care about the price? Let there be a debate about privatisation but let it be a debate about efficiency not price.